APRA published a letter by The Australian Securities and Investments Commission (ASIC) regarding preparations for the transition from London Interbank Offered Rate (LIBOR) to alternative benchmark rates. ASIC has written to the CEOs of several major Australian financial institutions regarding their preparations for the end of LIBOR. This initiative is strongly supported by APRA and the Reserve Bank of Australia (RBA).
LIBOR is used by many Australian financial institutions in their contracts and business processes. The UK FCA has stated that it will no longer use its powers to sustain LIBOR beyond 2021. This letter is aimed to help better understand how major Australian financial institutions are preparing to transition away from LIBOR to alternative benchmarks. ASIC, APRA, and the RBA are seeking assurance that the senior management in these institutions fully appreciates the impact and risks and is taking appropriate action ahead of the end of 2021. The financial regulators expect all institutions that rely on LIBOR to consider the impact of LIBOR transition on their business. Users of LIBOR should be aware of the size and nature of their exposures to LIBOR; put in place robust fall-back provisions in contracts referencing LIBOR; and be taking action to transition to alternative rates.
The letter states that the extent to which LIBOR may be embedded in a financial institution’s current business practices means the transition could be complex. The transition away from LIBOR may have significant implications on the entities’ risk management, operational processes and IT infrastructure. Insufficient preparations for the transition could have a negative impact on the entities’ business, clients, and the markets in which they operate.
Keywords: Asia Pacific, Australia, Banking, Securities, LIBOR, LIBOR Alternatives, OTC Derivatives, ASIC, RBA, APRA
Previous ArticleECB Publishes Paper on Its Macro-Prudential Policy Framework
The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.
The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.
The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.
The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.
The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.